INDEPENDENCE would provide new opportunities to reform the benefits system in Scotland, the UK's leading economic think tank has said.
However, the Institute for Fiscal Studies (IFS) warned in a report that radical changes would come at a price – either hitting the low-paid or resulting in the welfare bill rising substantially.
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The study set the welfare issue in the context of Scotland's long-term demographic challenge, pointing out how its population was projected to age faster than that of the rest of Britain.
It said: "All else equal, this will increase benefit spending in Scotland relative to Great Britain. Together with higher spending on health and social care, this suggests demographic change will place a greater burden on Scotland's public finances than it will on Great Britain as a whole.
However, it noted demographic projections, and thus projections for spending on benefits, were sensitive to fertility rates and the level of future net immigration.
The pro and anti-independence camps seized on the IFS report to bolster their arguments.
Blair Jenkins of Yes Scotland said: "It adds considerable weight to our case that independence would give Scotland the opportunity to design and build a benefits system that better reflects the priorities of the Scottish people."
This was echoed by John Swinney, the Scottish Finance Secretary, who said: "With independence this government will scrap the bedroom tax and put in place welfare policies that meet Scotland's needs."
Blair MacDougall of Better Together insisted the report had nailed the SNP myth on welfare once and for all and made it clear paying for pensions and welfare would be more expensive and complex in an independent Scotland.
He insisted pooling resources, risks and rewards as part of the UK was good for Scotland.
Willie Rennie, the Scottish Liberal Democrat leader, added: "With a population ageing more rapidly than the rest of the UK, the more generous welfare system offered but not detailed by the SNP would have to be paid for through tax rises, cuts to public spending or a slower payment of the deficit."
The report explained how welfare spending in Scotland was £17.2 billion in 2011/12, the last year for which full figures are available.
This was around 30% of all government spending in Scotland and 11.4% of GDP.
Benefit spending per person in Scotland in 2011/12 was £3238 per year, 2% higher than the average for Great Britain of £3176. However, the gap is closing; it was 7% in 2005/06.
The IFS said that if Scotland became independent, or if welfare was devolved to Scotland within the UK, there would be an opportunity to reconsider a "number of poorly-designed reforms", including the Coalition's benefits cap.
The IFS concluded that independence would "also give the opportunity for more radical reform, so the system better reflects the views of the Scottish people or provides greater work incentives, for instance".
However, it warned: "Major reforms to the benefit system – such as making benefit entitlements more closely related to the amount of National Insurance contributions paid – would likely either create large numbers of losers, many of whom are likely to have low incomes, or else involve a substantial increase in overall benefit spending.
"As with much else, independence offers Scotland an opportunity to set its own course on benefits policy but also the risk its ambitions cannot be fulfilled as demographic pressures bite."